*Original Post by Paweł Rudnik, Warsaw Institute*
Trade and investment activities between Washington and Mexico have increased in the last year. This is a result of the recent disputes concerning economic matters between the United States of America (U.S.) and China due to geopolitical tensions.
This shift has seen the country step in as America’s leading trade partner, replacing China and Canada. This transition has had a significant impact on China, which has long-established trade relationships with the world’s largest economy.
Mexico’s Dominance in U.S. Trade Statistics
Pawel’s research reveals that China exported goods to the U.S. valued at $239.06 billion. During the same period, Mexico has remained the top U.S. trading partner, with a $274.95 billion trade total. It’s important to note that this information only covers the first 7 months of 2023.
During July, 15% of the total export and import goods of the U.S. that originate from Mexico. On the other hand, only 14.6% of such goods come from China. As a matter of fact, in July, Mexico surpassed China in trade with the U.S.
Mexico has now assumed a dominant position as a primary export market, surpassing China. From January to July, Mexico and the U.S. traded $186.96 billion in goods and shipped $83.25 billion worth to China.
Expanding Presence of Mexico in Global Supply Chains
The significance of shifting supply sources to Mexico becomes particularly important in the fifth year of the ongoing U.S.-China trade conflict, which continues to escalate. The United States has imposed retaliatory tariffs ranging from 7% to 25% on $350 billion worth of imports from China.
Additionally, the U.S. administration mandates that 75% of a vehicle’s components must originate from North America. Notably, the transit time for shipping a container from China to the United States is a minimum of three weeks, whereas it takes just three days from Mexico.
This shift to Mexico could lead to improved production management and reduced labor costs. The manufacturing wage cost in Mexico averages $480. This amount is comparatively lower than China’s $840.
Mexico’s Contribution to the Growth of North American Trade
The role of Mexico in trade relations with the United States is set to expand. During a July meeting of the USMCA Free Trade Commission, Mexico, the United States, and Canada made a commitment to increase North American production to account for 25% of their current imports from Asia. This initiative aims to foster regional economic integration. It is expected to contribute approximately two percentage points to Mexico’s gross domestic product.
Financial analysts project that, in the next decade, an inflow of between $60 billion and $150 billion could be directed toward Mexico as part of efforts to relocate production closer to consumer markets. As a result, China’s portion of the worldwide manufacturing sector could encounter a period of slower growth.
Nonetheless, given its comparatively smaller economy and a population approximately one-tenth the size of China’s, Mexico is not in a position to assume China’s role as a primary supplier.
Trade Outlook Amidst U.S.-China Diplomacy
In recent months, President Joe Biden has actively worked to mend the strained relationship between the United States and China, which had deteriorated in recent years, with notable events such as the shooting down of a Chinese spy balloon in February.
In June, Secretary of State Antony Blinken gathered with China’s leader Xi Jinping. Additionally, Treasury Secretary Janet Yellen recently had a four-day trip to China. Ms. Yellen expresses her concerns about various issues. Her concerns include China’s “unfair economic practices.” She emphasizes her belief that “the world is large enough for both countries to thrive.”